South Korean prosecutors to use XRP ruling in Do Kwon’s securities fraud case

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Prosecutors in South Korea are reportedly leaning on a U.S. court ruling on XRP in their case against Terraform Labs executives over the Terra ecosystem’s collapse.

The Seoul Southern District Prosecutor’s Office confirmed that it obtained a translated version of the XRP ruling and will use it against Terraform Labs’s founders, Forkast News reported.

The U.S. court ruled that programmatic sales of XRP on exchanges did not amount to securities, but institutional sales of the tokens constituted investment contracts. Per the court, Ripple Labs’ failure to register XRP with the U.S. Securities and Exchange Commission (SEC) amounted to a breach of securities laws.

Dan Sung-han, a director at the Prosecutor’s Office, disclosed that investigators would be focusing on selling Luna to institutional clients as evidence of violations of South Korea’s capital market laws. Authorities allege that Terraform Labs are in breach of securities rules for failing to offer full disclosures to investors and committing fraud leading to losses running into billions of dollars.

In 2022, Terra’s ecosystem imploded following the sudden de-pegging of algorithmic stablecoin TerraUSD (UST) from the U.S. dollar. At the time, community members blamed market forces for the de-pegging event. However, upon closer investigation by law enforcement, it was revealed that fraud was a major contributory factor to the collapse.

In the 12 months that followed, the Seoul Southern District Prosecutor’s Office pieced together its case against Terraform Labs CEO Do Kwon and other executives. The investigations spanned multiple raids on private residences and office complexes, leading to the freezing of assets worth over $200 million.

The case against Kwon and his accomplices led South Korean authorities to engage in an international search for Kwon, resulting in his eventual capture in Montenegro. At the moment, investigators are locked in an extradition battle with the U.S. which many believe could swing in either direction.

Prosecutors say they have gathered enough evidence since Terra’s collapse to secure Kwon’s conviction with a sentence of up to 40 years.

Currently, Kwon is facing charges in Montenegro for possessing fake travel documents while investigators uncover a stash of funds linked to the embattled founder in South Korea.

Do Kwon’s investigation paves way for new department

South Korea has announced the creation of a new unit to investigate and prosecute digital asset crimes for efficiency. The Joint Virtual Asset Crime Investigation Unit is comprised of investigators from seven government agencies, including the National Tax Service and the Financial Supervisory Service.

“The virtual asset crime syndicate should help the initial virtual asset market not shrink and eliminate risks to stably settle in peace,” said Prosecutor General Lee Won-Seok.

With specialization as the guiding principle for the new unit, investigators will be involved in forensics and digital currency seizures, taking into account the borderless nature of digital assets.

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